Multiple Choice Answers

1. Isaiah Sporting Goods uses the perpetual average cost method of determining inventory costs. Below is the inventory record for Product C124:

 

Date

 

 

Received

 

 

Sold

 

 

Cost/Unit

 

 

Balance

 

 

 

April 22

 

 

534

 

 

 

 

$6.58

 

 

$3,513.72

 

 

 

May 17

 

 

433

 

 

 

 

$6.70

 

 

$2,901.10

 

 

 

June 21

 

 

389

 

 

 

 

$6.76

 

 

$2,629.64

 

 

 

August 2

 

 

436

 

 

 

 

$6.44

 

 

$2,807.84

 

 

 

 

What is the average cost per unit after the receipt of the May 17 inventory (rounded to the nearest cent)?

A. $6.63 C. $6.55

B. $6.00 D. $7.40

(3,513.72+2,901.10)/(534+433)=6.63

2. Which of the following is an incorrect statement if ending inventory is understated?
A. Net income is understated.
B. Gross profit is overstated.
C. Income tax is understated.
D. Cost of goods sold is overstated.

3. Which items may not limit the effectiveness of internal control systems in an organization?
A. Collusion
B. Properly designed controls
C. Overriding controls
D. Costs not worth benefits

 

4. Isaiah Sporting Goods uses the perpetual average cost method of determining inventory costs. Below is the inventory record for Product C124:

 

 

Date

 

 

Received

 

 

Sold

 

 

Cost/Unit

 

 

Balance

 

 

 

April 22

 

 

534

 

 

 

 

$6.58

 

 

$3,513.72

 

 

 

May 17

 

 

433

 

 

 

 

$6.70

 

 

$2,901.10

 

 

 

June 21

 

 

389

 

 

 

 

$6.76

 

 

$2,629.64

 

 

 

August 2

 

 

436

 

 

 

 

$6.44

 

 

$2,807.84

 

 

 

 

What is the average cost per unit after the receipt of the June 21 inventory?
A. $6.61 C. $6.72
B. $6.67 D. $6.62

=(3513.72+2901.1+2629.64)/(534+433+389) = 6.67

5. Which of the following is an incorrect statement if ending inventory is overstated?
A. Cost of goods sold is overstated.
B. Gross profit is overstated.
C. Net income is overstated.
D. Income tax is overstated.

6. Casey Company’s beginning inventory and purchases during the fiscal year ended December 31, 2012, were as follows: (Note: The company uses a perpetual system of inventory.)

 

Date

 

 

unit

 

 

Unit price

 

 

Total cost

 

 

January 1—Beginning Inventory

 

 

20

 

 

$12

 

 

$240

 

 

March 8—Sold

 

 

14

 

 

 

 

 

 

April 2—Purchase

 

 

30

 

 

$13

 

 

$390

 

 

June 5—Sold

 

 

25

 

 

 

 

 

 

 

Aug6-Purchase

 

 

25

 

 

$14

 

 

$350

 

 

Total cost of inventory

 

 

 

 

 

 

 

$980

 

 

Ending inventory is 14 units

 

 

 

 

 

 

 

 

 

 

What is the ending inventory of Casey Company for 2012 using FIFO?

A. $196
B. $182
C. $175
D. $168
=14*14 = $196

7. A drawback to using _______ when inventory costs are rising is that the company reports lower net income.
A. specific-identification costing
B. average costing
C. FIFO
D. LIFO

8. One of the biggest factors in implementing SOX was
A. disclosing deficiencies in internal controls. C. establishing internal control procedures
B. reviewing the financial reports. D. the cost of implementing the system.

 

9. The major difference in the statement of retained earnings between a service business and a merchandising business is
A. that the retained earnings statement of a merchandising business includes dividends.
B. nothing. There are no differences between the two.
C. that the retained earnings statement of a merchandising business shows the cost of goods sold.
D. that the retained earnings statement of a service business includes dividends.

10. Committing a fraud because the employee feels that it will be easy to do is indicative of which part of the fraud triangle?
A. Realization
B. Rationalization
C. Perceived opportunity
D. Perceived pressure

11. When a merchandiser sells on account, which of the following is not needed to record the transaction?
A. Accounts receivable
B. Cash
C. Inventory
D. Cost of goods sold

12. Meranda Corporation purchases $3,500 of inventory on account from Ashley Corporation. The journal entry to record this purchase for Meranda under a perpetual inventory system is
A. debit Inventory; credit Cash.
B. debit Inventory; credit Accounts Payable—Ashley.
C. debit Accounts Payable-Ashley; credit Inventory.
D. debit Inventory; credit Accounts Payable—Meranda.

 

 

 

13. A company has $8,200 in net sales, $1,100 in gross profit, $2,500 in ending inventory, and $2,000 in beginning inventory. The company’s cost of goods sold is
A. $5,600. C. $6,200.
B. $7,100. D. $5,700.

14. Meranda Company reports the following inventory information:

 

 

Inventory Number

 

 

 

Inventory Quantity

 

 

 

Unit Cost

 

 

Unit Market Value

 

 

 

APD 3838

 

 

325

 

 

$56.78

 

 

$55.32

 

 

CPZ 1212

 

 

506

 

 

$92.31

 

 

$92.78

 

 

IXL4039

 

 

817

 

 

$77.89

 

 

$79.31

 

 

EOD 3902

 

 

382

 

 

$19.38

 

 

$19.02

 

 

DKS4823

 

 

626

 

 

$33.46

 

 

$30.74

 

 

 

What is the total value of the merchandise under LCM (lower-of-cost or market)?
A. $154,832.90
B. $156,230.80
C. $157,147.60
D. $158,545.60

15. New technology, like the latest cell phones and HDTV, would probably be costed using the
A. LIFO method of inventory costing.
B. FIFO method of inventory costing.
C. moving-average method of inventory costing.
D. specific-identification method of inventory costing.

16. Physical inventory counts must be done
A. when using bar-code scan technology.
B. when using the periodic method of inventory.
C. regardless of method inventory.
D. when using the perpetual method of inventory.

 

17. In a balance sheet prepared in report form, liabilities must be listed after
A. assets with long-term liabilities listed first.
B. assets with current liabilities listed first.
C. assets in alphabetical order.
D. stockholders’ equity.

18. The balance sheet format that lists assets above liabilities is the _______ form.
A. report
B. alphabetical

C. account
D. liquidity

19. Which of the following may not limit the effectiveness of internal control systems in an organization?
A. Duties not segregated
B. Understanding of policies and procedures
C. Costs not worth benefits
D. Poorly designed controls

20. When a company repays the seller for shipping costs on an FOB shipping transaction, which of the following is true?
A. A purchase discount can still be taken net of the prepaid shipping charges.
B. A purchase discount cannot be taken when shipping charges are prepaid.
C. The shipping costs don’t affect the invoice cost.
D. A purchase discount can still be taken on the gross amount of the invoice